Alternatives to Bankruptcy

Inflation and having a special needs kid of two brothers has certainly been tough. I have a 740 credit score but can’t seem to find a personal loan with an interest rate below 10% - some over 17%

I was wondering what are alternatives to liquidation bankruptcy? Not there yet but we have $45,000 in credit card debt up from $12,000 in 18 months. We made $86,000 last year which was a drop in income and received a $13,000 adoption subsidy. We paid $4,000 to Maryland and $6600 in FICA but paid a negative $3,000 in federal income taxes and will so until our first son turns 17 in the 2026 tax season

First option is cutting spending. We spent $10,000 a month last year, including $2,200 on food. We also spent $3,415 on daycare for the teenagers (up to $2,855 for 2023). We also spent $6,000 on a transmission, and $9,600 in doctor visits but probably only another $600 in medications

Second option is to increase income. We are likely to see an increase in our adoption subsidy but will also have legal fees of between $3,000 and $11,000 and have existing adoption agency debt of $3,000 to $8,000.

Third option is to enter a debt management plan. We are currently paying $1,509/mo to service these debts and approximately $1,505 on our mortgage which is a whopping 42% of our income - including $522 for my wife’s student loans

Fourth option is to continue the balance transfer shuffle game. I don’t like this option but it lowers interest and I’ve averaged 2% interest in 2015-2018, 5% interest from 2018 to 2021 and 7% interest in 2022. Unfortunately it looks like this might be 10-15% interest in 2023 due to a 5% transfer fee and a 0-5% APY on top of that

Fifth option is to get a home equity loan from the bank. We need to put $20,000 to $25,000 into our home. We have $86,000 in equity. This would increase the house payment to $2,000 a month with a 7% interest rate

Sixth option is a terrible option and that’s a 401k loan. The interest rate is only 3.625%. I’d need to buy an S&P 500 index call option with a 5-6% interest rate

Seventh option of course is chapter 13 bankruptcy. Option #5 would lessen the amount I’d have to pay under the bankruptcy during the 3 year payback period because we’re below the median income of $140,000 a year

Eighth option is chapter 7 bankruptcy. Of course withdrawing or borrowing from the 401k or IRA makes absolutely zero sense if this option. That said, only $27,000 of home equity is exempt and my wife’s share of the home equity is $43,000 and selling costs is approximately $14,750. Only $11,000 in other assets are protected and unfortunately my wife put me on title up her car

Are you getting social security to help pay for that? If they have medical issues, you should be able to get some form of help financially.

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My opinion: A combination of options one and two. Your success with option two will determine how far you need to go with option one.

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Yes that’s great advice

Yes the kids have Medicaid but we also have private insurance. That said, we have to go out of network for one of our sons which we couldn’t do if we used Medicaid. The insurance and Medicaid has covered over $200,000 in medical expenses so under $10,000 is relatively cheap by comparison

We might be soon getting a stipend increase from $6,500 to $10,000 a year more but no guarantees

I’m not a lawyer but I believe they qualify for social security. Look into that.

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That could be helpful. Thanks. It’s somewhat possible that the young one could be on SSI as an adult but the other one likely would only be till 18 if at all since he only has ADHD which I know all too well from myself. I need to look into whether I can get $2k of summer camp paid or $1,425 in my case

I also should look at summer camp reimbursement

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